The Court of Appeal has set aside a US$345 million freezing order granted by the Commercial Court while definitively stating the law on the “unambiguous impropriety” exception to without prejudice privilege.

Motorola Solutions won a trade secrets claim brought in Illinois against Hytera Communications of China, its main competitor in the digital radio market. The jury awarded damages of US$345 million. A freezing order was sought from the Commercial Court under s.25 of the Civil Jurisdiction and Judgments Act 1982. The critical issue was whether Motorola had established a risk of dissipation. Jacobs J. found that it had, on the basis of statements made by Hytera at without prejudice settlement meetings. Motorola alleged (though Hytera denied) these amounted to threats to deal with its assets so as to frustrate any judgment.

The lower court held that the proper approach on an application for a freezing order was whether the applicant had shown a “good arguable case”. Although there was conflicting evidence and it was not possible to make any findings as to what had been said, there was a good arguable case that the statements had been made and accordingly the “unambiguous impropriety” exception applied.

Reversing that decision, the Court of Appeal (Lewison, Males and Rose LJJ) held that statements made during without prejudice negotiations could be admitted in evidence under the unambiguous impropriety exception only if the relevant impropriety was itself proved “unambiguously”. Since Jacobs J had not been able to make a positive finding of improper conduct against Hytera, it followed that the alleged impropriety had not been unambiguous, and that the disputed statements should not have been admitted in evidence.

The Court acknowledged that the requirement for “unambiguous” proof is a high threshold and means that the impropriety exception will only rarely be engaged at an interlocutory stage of proceedings. To apply a less stringent test would unduly erode the confidentiality that policy requires for settlement negotiations. Earlier Court of Appeal authority (Dora v Simper, 1999) was wrong, conflicted with other decisions, and should not be followed.

Charles Béar QC and Alexander Milner acted for Hytera, instructed by Ivan Gordienko of Steptoe & Johnson.

The judgment is available here.